Exemption for fully hedged borrowings

PARISTA YUTHAMANOP

Fully hedged foreign currency borrowings by Thai companies will be exempted from the 30% reserve rule starting in February, according to Bank of Thailand governor Tarisa Watanagase.

Loans must have maturities of at least one year, and be fully hedged against currency risk, she said yesterday. A formal announcement is to be made on Monday.

''Our objective remains the same. We don't want the baht to fluctuate from capital inflows,'' Dr Tarisa said.

The exemption of fully hedged loans reflects the fact that such transactions will require a future swap to be taken immediately against the trade, mitigating any impact on currency rates.

Local companies, including the energy giant PTT Plc, have sought an exemption to allow fund-raising from the international market. Without an easing of the rules, their financing costs would rise.

On Dec 18, the central bank announced that foreign inflows would require a 30% deposit to be set aside interest-free with regulators under a measure aimed at stemming the appreciation of the baht.

Dr Tarisa also said exporters should not be worried about rapid appreciations in the baht's offshore rate, which reached 33.5 to the dollar yesterday.

Domestic banks are still quoting a rate of around 35.7-35.9.

Offshore rates are significantly different from local rates as the 30% reserve rule has curbed liquidity in the international market.

Dr Tarisa said the gap between offshore and onshore rates reflected the effectiveness of the reserve rule.

Local appreciation of the baht this past week stemmed in part from dollar sales by exporters alarmed about offshore rates, she said.

''The central bank would like to warn exporters to be careful in monitoring the exchange rate. There is a two-tier baht market now,'' Dr Tarisa said.

Suchada Kirakul, a central bank assistant governor, said the offshore baht rate had also strengthened because of investor confusion about the capital account rules and the use of special non-resident securities accounts (SNS) and non-resident baht accounts (NRBA).

''Investors are perhaps confused about whether they can transfer funds from an SNS to an NRBA. Or they may not understand that they can buy baht without being subject to the rule, so they have sold dollars in the offshore market,'' she said.

Bangkok Post
Sunday January 28, 2007